Question

Classical macroeconomists argue that the short-run Phillips curve ________ represent a usable trade-off for policymakers because ________.
A) does; people have rational expectations
B) does; people do not have rational expectations
C) does not; people do not have rational expectations
D) does not; people have rational expectations

Answer 1

Answer:

D) does not; people have rational expectations

Explanation:

Philips short-run curve is a curve which shows the relationship between unemployment and inflation in any given country. This thoery was discovered by Professor A.W.Phillips which was based on observations he made of unemployment and changes in wage levels from 1861 to 1957 in which he found that there was a trade-off between unemployment and inflation.

The argument was that, it does not represent a usable trade-off due to the fact that policy makers have a simple choice to make - to either accept the lowering of inflation or unemployment.